The market for old and used vehicles has expanded significantly. Various companies are selling their older models at reduced prices, but buyers of these vehicles may face a significant setback. The GST Council may increase the GST on both electric and non-electric old and used vehicles to 18%, up from the current 12%. If this proposal comes into effect, purchasing second-hand vehicles could become more expensive.
Electric Vehicles (EVs) to be Included
According to a report by Business Today, the GST Council's Fitment Committee has recommended increasing the Goods and Services Tax (GST) rate on old and used vehicles from 12% to 18%, which may also apply to used electric vehicles. Currently, taxes on these vehicles are based on the supplier's margin, which keeps the tax burden relatively low. Notably, new EVs are taxed at a 5% GST rate to promote sector growth; however, a resale GST of 18% might make second-hand EVs less attractive to buyers.
Possibility of Declining Demand
The input parts and services for repairing and maintaining second-hand vehicles are already taxed at 18%, increasing operational costs in the used car market. If the GST rate is raised, this sector could face higher overall tax payments on vehicle sales, possibly leading to a reduction in demand, particularly impacting electronic vehicle customers.
Tax Based on Engine and Length
Current GST rates apply as follows: 18% for vehicles powered by petrol, LPG, or CNG with an engine capacity of 1200CC or more and a length of 4000MM or more; 18% for diesel vehicles with engines of 1500CC or more and a length of 4000MM or more; and 18% for sports utility vehicles (SUVs) with engine capacities exceeding 1500CC. The Fitment Committee's recommendation to hike the GST rates to 18% for this category of old and used vehicles aligns with the existing tax structure for large vehicles and SUVs. However, it could lessen the appeal of the second-hand EV market.
Meeting to Be Held on December 21 in Jaisalmer
Notably, the 55th meeting of the GST Council is scheduled to be held in Jaisalmer, Rajasthan, on December 21, 2024. Central Finance Minister Nirmala Sitharaman, alongside state finance ministers, will attend the meeting. The council is expected to discuss changes in GST for term life insurance policies, discounts on health insurance premiums, reviews of GST slabs, and the potential increase in GST for older and used vehicles.
